Vodafone Idea shares: What Citi, Motilal Oswal infer from Supreme Court's AGR relief

Vodafone Idea, one of India's largest telecom operators, on Monday got a big relief after the Supreme Court allowed the government to reconsider the company's grievances regarding adjusted gross revenue (AGR) dues. 

Brokerage firm Motilal Oswal upgraded the stock of the telecom operator to "neutral" from its earlier rating of "reduce" on October 28 and also raised its price target to Rs 10 from Rs 6.5 earlier.

Meanwhile, Citi highlighted the development as a key factor, maintaining a 'high risk buy' stance. The global brokerage noted that the apex court's order has permitted the Government of India to consider grievances of the company on issues relating to AGR, adding that this could have significant positive ramifications for Vodafone Idea and, by extension, for Indus Towers.

On Monday, the telco saw its share price close 4.16% higher at ₹10.02 following a 52 week high of Rs 10.57 during intraday trading. 

The Supreme Court clarified that its order applies only in the "peculiar facts and circumstances" of Vodafone Idea's case, considering the government's 49% equity stake and the operator's 200 million subscribers. Analysts outlined several options available to the government for addressing Vodafone Idea's AGR liabilities, including extending the repayment timeline beyond March 2031, waiving 50% of interest and 100% of penalties, or rectifying past calculation errors.

Solicitor General Tushar Mehta, appearing for the Centre, stated that "the government would not recompute the AGR dues, but would propose a solution, subject to SC approval."

Any relief on the AGR front is expected to alleviate Vodafone Idea's cash flow pressures, which could support efforts to raise up to ₹25,000 crore in bank debt, following the company's recent ₹18,000 crore FPO and an additional ₹2,000 crore promoter infusion in 2024.

Citi anticipates that with a substantial AGR payment due in March 2026, any government relief is likely to materialise "well ahead of this deadline, in the coming weeks and months."

The brokerage further observed that such relief could encourage banks to extend credit, supporting Vodafone Idea's network capital expenditure plans and potentially facilitating a future equity raise. This could also lead to a dilution of the government's stake, creating the possibility for further conversion of dues into equity.

In the broader industry context, Vodafone Idea continues to compete with sector leaders Reliance Jio and Bharti Airtel, both of which maintain stronger balance sheets and greater financial flexibility. The Supreme Court's clarification leaves it uncertain whether similar relief will be available to other telecom incumbents.